ORCID

Abstract

This thesis investigates the dynamic linkages among financial, industrial, service, and generalindices of the Amman Stock Exchange (ASE) in Jordan from 2000 to 2020 using a vectorautoregression (VAR) model and by using daily data. The main aim is to provide acomprehensive understanding of the interrelationships among these key sectors over the 21-yearperiod. The objectives are to examine both short-term and long-term dynamic linkages, assessthe model's explanatory power for variations in sector indices, and derive insights for investorsand policymakers.The study employs a VAR methodology to capture the dynamic interactions among the sectorindices. Daily data on sector indices is analyzed using Granger causality tests, impulse responsefunctions, and variance decomposition to quantify the linkages.The findings reveal significant dynamic linkages among ASE sector indices. The VAR modelexhibits high explanatory power, with R-squared and adjusted R-squared values above 99% forall sectors. Granger causality tests indicate bi-directional causality between the financial andgeneral indices and between the service and industrial indices. Impulse response functions showthat shocks to each sector have significant effects on the other sectors that persist over severaldays. Variance decomposition analysis attributes 27-38% of forecast error variance in eachsector to innovations in other sectors, affirming the importance of intersectoral relationships.The empirical evidence can inform portfolio diversification and risk management strategies forinvestors. For policymakers, the findings underscore the importance of considering spillovereffects in regulatory frameworks governing the financial sector and capital markets.To mitigate systemic risk and promote stability, policymakers could consider implementingmacroprudential policies such as countercyclical capital buffers, exposure limits, and liquidityrequirements that account for the interconnectedness of sectors. Enhancing transparency throughdisclosure requirements and stress testing that incorporate intersectoral linkages could also helpmonitor and manage systemic risk. Coordination among regulators overseeing different sectorsmay be warranted to address cross-sector vulnerabilities. Overall, a holistic approach thatrecognizes the dynamic linkages among sectors is recommended to foster a resilient financialsystem.

Document Type

Thesis

Publication Date

2024

Embargo Period

2024-12-11

Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

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